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Writer/director Joss Whedon released a fun little project that he worked up during the actor’s writers’ strike. “Dr. Horrible’s Sing-Along Blog” is a terrific story that I watched several times, shared with the wife and kid, etc. As I watched it for the second time, I got to thinking about the business behind this, since Whedon has stated that this is an explicit experiment in seeing how far a talented, experienced team can go (on an artistic and, presumably, business level) without the advice, support and constraints of an established movie studio or television network.

There’s an enforced scarcity at work with the Dr. Horrible project that I think is smart if you’re really trying to make this into a business. They put the three episodes online to view for free for a few weeks five days but they took them down yesterday; you can only view them on iTunes now — by paying $3.99 for them. So if we’re going to do a profit/expense spreadsheet on this, the first question is “how many people will pay for this now that you can’t get it for free?” We don’t really know the answer because we’ve never seen anything quite like this before — certainly the notion of purchasing videos on iTunes is not new, but they mostly carry movies that have already been in theaters and TV shows that have already aired. But iTunes is the only place you can get Dr. Horrible now; you can’t even get it for free. So for someone who hasn’t seen it yet, you have to pay.

Just from a content perspective, what Dr. Horrible lacks in production value it more than makes up for in terms of plot, humor, and lyrical complexity. For example, musical theater aficionados will note that a few of the Dr. Horrible numbers feature two distinct countermelodies. It’s difficult to parse a melody and a countermelody lyric in real time, much less two distinct countermelodies being sung along with a melody part. To get it all (and rabid Whedon fans will want to), you’d have to listen to it at least three times. So Dr. Horrible seems specifically engineered to be watched again and again. This means that people (like me) who use iTunes and own (multiple) iPods but have never purchased a video on iTunes (because of onerous DRM restrictions, etc.) might now feel compelled to purchase the video. They’d do this even though they’ve already seen it for free — because they want to watch it again, they want to share it with people who missed it the first time, they find Felicia Day’s overbite adorable and find themselves thinking about her in the shower, etc. It’s premature to think of Dr. Horrible to be the birth of a genre or a business model for online content (and ultimately, who knows whether reruns of “Two And a Half Men” are doing well on iTunes), but if the business behind Dr. Horrible works, it could signal the beginning of the end of television as the medium of the least-common-denominator and the beginning of the profitable niche market.

So my original line of inquiry for the notion of “The Business of Dr. Horrible” was: What’s In It for Doogie Howser? It’s definitely the case that actor Neil Patrick Harris’ performance was a significant contributing factor to the series’ success. Assuming that the business of Dr. Horrible works, can independent producers expect to be able to lure “name” talent like Harris as a matter of course in the future?

Let’s assume that Harris worked for AFTRA scale on this project. There are specific AFTRA rates for “interactive media” performers; if he worked for scale, he probably got the weekly rate of $2,634, and we can guess that this project represented maybe 2-3 weeks of his time (maybe more, maybe less, but if he worked for scale it’s safe to say that as a sitcom regular, his up-front paycheck for Dr. Horrible will be little more than a rounding error on his 2008 tax return). If we think in terms of expected rate of return, there’s a bit of a wrinkle here because his expected income from new projects during this time would have been zero (since this project happened during the writer’s strike). Ultimately, though, it seems likely that Harris (as well as most if not all of the actors and crew on the production) were principally paid in points — a (likely small) percentage of any profit that will be made from the production in the future.

Whedon has said that Dr. Horrible cost “in the low six figures” to produce. Let’s assume by that he means a maximum of $250K. If the only revenue stream for this is iTunes, then he will have to sell about 70,000 copies of all three episodes to break even. (This assumes that his net revenue from iTunes is about $3.59 per unit after Steve Jobs takes his 10% cut, and that virtually no one will purchase just one episode.)

So to continue, let’s say that Neil Patrick Harris’ deal with Whedon was for AFTRA scale plus 3 points. If 100,000 copies of the series are sold on iTunes, that generates revenue of $359,100, and a profit of $109,100, of which $3,273 goes to Harris (again, this is assuming he owns 3 points of the series, which is probably not an unreasonable guess). This is definitely the kind of paycheck that a network series regular like Harris would stick in a folder labeled “I Did It For My Art”. But if the series were to sell a million copies, he does considerably better: $100,230 for (presumably) a few weeks’ work. This is about what the cast of Friends were making per after season 2 of that show, but a fraction of what they were pulling down ($1 million per episode each) during that series’ final season.

That doesn’t factor in potential DVD sales, though, which Whedon has said will take place later. So we can pretty much assume that Doogie will do okay over time. Joss Whedon, as the principal investor behind this production, naturally stands to do much better. If we assume that Whedon set aside 20% of the profits for cast and crew, as the principal investor in Dr. Horrible, that means Whedon owns 80% of whatever’s left. If the show sells 100,000 units on iTunes, he makes $229,840 $87,280; if it sells a million copies, he winds up making more than four million dollars more than $2.6 million on his original “low six-figure” investment. And that’s before the DVD even comes out. It may not be the kind of bucks he could make from writing and directing a feature film, but very few feature films make millions of bucks in profit (and bear in mind that Whedon’s own feature films haven’t actually done so well, his rabid fan base notwithstanding). The Internet freemium model may be just what Dr. Horrible ordered to enable him to connect with his fans, get the artistic freedom he needs, and sustain himself in a business sense with a niche fan base.

So while this experiment certainly hasn’t played itself out yet, it may light the way for a future in which online content generates revenue without sucking. But the remaining question from a business standpoint is: is this model replicable to other content creators? To what extent is the Whedon factor at work here? Say that a group of four university film students come up with a story that’s even funnier and more heart-warming as Dr. Horrible, and they come to an investor looking for $100,000 (or heck, even $10,000) to pull it off. If they’re even able to locate an investor, what’s that investor’s expected rate of return? If this group just puts their video on YouTube, by the time it gets a million views, it might be too late for them to monetize it as Whedon is attempting to. But it seems to me that the key to this working as a long-term trend is for bright (and niche) content creators to get access to the experienced help and talent they need to bring their visions to life. In the past, filmmakers turned to Hollywood studios for this. Tomorrow, who knows.

A lot of this is back-of-the-cocktail napkin guesstimation, so if my numbers or assumptions are off anywhere I’d be happy to hear from you in comments.

Update: I’m seeing a lot of comments following a link from the Whedonesque blog, so howdy do, Whedon-a-rinos. It’s not possible for newbs to post on Whedonesque, or else I’d post this in that thread. So here are some more thoughts. First, a bunch of people dissed me for not “doing my research”. But I say over and over again that all of these figures are guesstimates, not facts. That said, a bona fide entertainment industry executive (my friend Matthew) did mention in comments here that my profit/loss figures are probably not far off the mark. If you have some specific information (or better guesses) you’d like to share, then by all means, speak up.

A few people seemed to get hung up on the notion of how much acting time went into the production (whether it was six days or 2-3 weeks as I supposed). Joss Whedon did indeed say that there were six days of shooting time for the series, but if you’ve ever done musical theater (and I actually have) you know that music requires a lot of preparation and rehearsal time. Since NPH and company were definitely not learning the songs at the same time they were shooting, I am guessing that the whole thing consumed two weeks of his time, minimum. But whether it took ten minutes or six weeks doesn’t matter in profit/loss terms, particularly in this case since (as I also pointed out) there was a strike on and nobody was making anything during that time.

To the guy who theorized that the actors did this for the love (i.e., for free): not a chance. Whedon actually stated in the Washington Post article that there was a business arrangement; all I did was to try to come up with figures that seemed plausible given what we know. (Union scale plus points is actually a not-very-revolutionary artithmetic when an independent filmmaker wants to attract non-unknown talent to a promising project; the only unknown here is how much did Whedon share with cast and crew. I guessed 20% but it could have been much more or a little less.)

Finally, to the dude who faulted me for calling NPH “Doogie Howser”: these are things that we like to refer to as “jokes”. They are things we say because they are “funny”. The main thing is, I don’t like to use Neil Patrick Harris’ actual name in a blog post because of the element it attracts — who needs an unbearable deluge of Neil Patrick Harris fans posting their onerous, pedantic screeds on my blog? Not me, I assure you.

Update 2: Joss-the-man-himself chimed in on the blog to confirm that my numbers are “not far off”. He also made his own Doogie joke. Sweet vindication.

That started with an idea I had when I was working on the Beavis and Butthead movie and I was thinking about evolution and how since now there’s no natural predators and pretty much everybody survives, evolution kind of favors people who don’t wear a condom and people who knock up a bunch of baby’s mamas and all that kind of stuff. So this is basically kind of one of those movies where a guy’s frozen and thawed out in the future, which there have been many. But basically it’s 500 years in the future and everybody’s gotten a lot dumber. So Luke Wilson plays a guy who’s just kind of a dumb-ass average Joe in the army today and in the future he’s the smartest guy in the world, because everyone’s gotten so dumb. And he ends up having to save the world, is pretty much the plot.

It sounds exactly like the philosophy of devolution! It will be interesting to see what Mike Judge does with a big budget and special effects, etc., although I continue to hold my breath for an Office Space sequel (which he hinted might happen someday).

If you’re from the San Francisco Bay Area, pay close attention to the first ten minutes of the tremendous new Pixar flick, The Incredibles…there’s a boss car chase through a generic-looking Anytown U.S.A. A radar tracker reveals that the cars are actually chasing each other through the streets of Emeryville (where Pixar is based). (I guess that’s sort of an Anytown.)

About Jeffrey

Jeffrey McManus is the founder of CodeLesson, a place to learn and teach technology online. CodeLesson rocks because we use real human instructors to teach courses, so you're never stuck on your own. Read more about Jeffrey.

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